A well-known short-selling firm famous for bets against Nvidia (NVDA) , Valeant Pharmaceuticals, and Tilray (TLRY) has advice for those considering a bearish bet on Lyft (LYFT) : Don't be a chowderhead.
Shares of the San Francisco-based ride-sharing company are surging to around $76 on Friday, carrying back toward their closing price on its first public trading day and past its initial list price. They closed up 3.40% to $74.45.
The action might have another roadblock removed if a report from the Andrew Left-helmed short-selling specialty firm Citron Research can dissuade bearish bettors on the stock.
"Shorting disruptive companies that dominate a mega-trend simply because they lose money is a sure way to go broke," Left said, citing Tesla (TSLA) , Netflix (NFLX) , and Square (SQ) as key examples of this idea.
The $285 billion total addressable market of the ride-sharing industry is still largely untapped according to Goldman Sachs estimates, offering serious upside to Lyft's business if it can pick up a portion of the still available customers.
That opportunity should certainly raise a red flag for pessimistic players, especially when bolstered by stats that reveal a driver's license is a far less prized item than it once was among teens in America.
Further, as the industry becomes more established, consumers tend to utilize services more often. That would suggest that Lyft can grow even if it is only able to incrementally chip away at the market share available.
"Lyft is in a rare class of businesses along with Amazon (AMZN) and Alibaba (BABA) where people use the service more and more over time and don't need to be reacquired," Left explained. "This is in stark contrast to most other consumer businesses like Wayfair (W) and/or Carvana (CVNA) where a customer's purchases do not increase. Businesses like Lyft and Amazon save life's most precious commodity, time, and therefore have the greatest pricing power as well."
He added that the company's duopolistic position alongside Uber also helps to protect its share value, and actually places it at a steep discount to its only comparable peer given Uber's blockbuster $120 billion valuation.
Left added that the trends in Lyft's market share growth are much more promising, bringing its U.S. market share to 39% and marking a revenue growth rate more than twice as rapid as Uber's.
Essentially, there is reason for some questions as each of the ride-sharing companies continue to lose money. But that doesn't mean it's time to short the stock.
"It's too early to be over-reactive," Wedbush analyst Dan Ives said following the volatile moves in the shares post-IPO. Perhaps that is the best advice at present.
To hear why one IPO expert thinks Uber is the better short bet, click here.